Top Critical Mistakes done by Start Up Airlines
Jonathan Norman
Aerospace Business Development - Aviation Strategy - Aviation Branding
Today, I want to shed light on a post I’ve been trying to put together for some time. Over the years I assisted several airlines start-ups and reengineering of several business plans, and I found that these are the critical mistakes often made by airlines:
-???????Not Budgeting Realistic Digital Marketing Costs for Route Development:?In today's digital age, effective marketing plays a pivotal role in route development. Start-up airlines often fail to allocate sufficient resources for digital marketing, resulting in limited brand visibility, reduced passenger engagement, and missed revenue opportunities. By accurately assessing the costs associated with online advertising, social media campaigns, search engine optimization, and website development, start-ups can strategically promote their routes and attract a wider audience. Also, special care needs to be assessed when making assumptions on air network planning software’s, since results of the analysis are based on professionals who do not have experience dealing with digital marketing costs.
-???????Failing to Obtain Accurate Data for Cost of Operation of the Desired Fleet:?Understanding the operational costs of the chosen fleet is crucial for any start-up airline. Neglecting to gather accurate data on aspects such as engine time on wing and parts logistics costs can lead to financial setbacks and inefficient maintenance practices. For instance, let's take the example of engines on the Airbus A220, the PW1500G where downtimes were far more extensive than the once predicted by the OEM, costing the operators millions of dollars of lost revenue for extended engine maintenance. Start-ups should thoroughly research and analyze the specific maintenance requirements and associated costs of these engines to ensure proper budgeting and decision-making.
Tip: Hiring legal and technical professionals for contract negotiations is highly recommended!!
-???????Not Performing Cashflow Simulations with Different Fuel Price Scenarios:?Fuel prices significantly impact the profitability of airlines. Start-up airlines often overlook the importance of conducting cashflow simulations that consider various fuel price scenarios. Failing to assess the impact of fluctuating fuel costs on their operations can result in an inaccurate understanding of the critical break-even point. By conducting thorough simulations and developing contingency plans, start-ups can gain better financial stability and adapt to changing market conditions.
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Furthermore, there are two additional factors that deserve attention:
-???????Lack of Cabin Layout Strategy:?airlines often underestimate the significance of a well-defined cabin layout strategy. Neglecting to focus on the emerging premium economy segment can result in missed revenue opportunities and a failure to cater to specific passenger personas. By analyzing market trends, understanding customer preferences, and designing attractive cabin layouts, airlines can enhance customer satisfaction and capture a valuable market niche.
-???????Cargo Sales Strategy:?Cargo sales can significantly contribute to an airline's revenue stream. However, airlines often lack a realistic and well-defined cargo sales strategy. Failing to set attainable revenue objectives and establish effective partnerships within the logistics industry can hinder growth and profitability. By investing in a comprehensive cargo sales plan, start-ups can maximize their revenue potential and build a strong foundation for their operations and expect a realistic outcome instead of ending with unexpected results.
Tip: Not all airlines have the infrastructure and adequate country policies to implement an effective cargo business. Invest on pre-feasibility studies and look for honest feedback. Getting a “No” for an answer is as valuable as a “Yes”, that’s why you are paying for a professional…
This is my two grains of salt… If you have any insights to share on these topics or the aviation industry in general, please share your thoughts in the comments below or PM to continue the discussion.
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1 年It's an ever-evolving landscape that demands resilience and innovation. I'm optimistic about the future and excited to see how airlines navigate and adapt to the changing times. Thanks for sharing your insights!
Commercial Strategy : Planning- Insights & Business Development | Business Engineering | Start-Ups | VP level | People first | Operations & Sales | Transformation | M & A | Multilingual & Cultural Aware
1 年Carving a new niche , and fabricating traffic into new O & D's vs. trying to steal traffic from the exisiting well established carriers. You can start making money by being very strategic in your network layout , from the beginning. In Canada we have all these start ups and expanding established carriers all trying to go after the same passenger on the same old and tired O & D's......lack of innovation and creativity, nor market knowledge. Discounting is not a strategy but a lack of one Route network development should be a marketing task and activity. great read Jonathan
Future Energy Global | Aviation Sustainability & Strategy
1 年Jonathan, these are good points. I'd add another that I see time and time again: failure to consider the competitors' response. "We're going to start an airline to fly from X to Y, and our fares will be 20% cheaper than the incumbent, so we'll take a big slice of the market."* "How do you think the incumbent will react?" "What do you mean?" "Well, what happens when the incumbent drops its fares by 30% for a couple of months to get rid of you?" "They wouldn't do that! They'd lose money!" "Yes, but they can afford to lose money on one route in their network for a few months to make a troublesome competitor go away." <pause> "Surely they wouldn't do that... would they?" *back to your point about marketing, Jonathan: even if a new airline is undercutting the incumbent, people won't book with it if they can't find it. (Oh, and another mistake: putting average yields in your business plan which are based on what you need to be profitable rather than what the market will bear!)
Management Consultant | Strategy & Transformation | Value Realization | Digital Transformation and Solutions | Data-Driven Execution | M&A | MBA | PMP | EPC / Energy / Oil & Gas
1 年Nice summary. Customer acquisition and loyalty and route selection probably could also make the list.